IRET Reports Third Quarter 2019 Financial Results and Updates 2019 Guidance

MINOT, N.D., Nov. 6, 2019 /PRNewswire/ -- IRET (NYSE: IRET) announced today its third quarter 2019 financial and operating results.  The tables below show Net Income (Loss), Funds from Operations ("FFO") and Core FFO per share for the three and nine months ended September 30, 2019; same-store revenues, expenses, and net operating income ("NOI") over comparable periods; and same-store weighted-average occupancy for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018.

Third Quarter 2019 Highlights

• We reported Net Income of $2.54 per diluted share for the third quarter of 2019, compared to Net Income of $0.08 per share for the same quarter in 2018;
• Core FFO grew by 15.1%, increasing to $0.99 per diluted share for the third quarter of 2019, compared to $0.86 per share for the same quarter in 2018;
• Same-store revenue increased year-over-year by 4.0% driven by 2.6% growth in rental revenue and 1.4% growth in occupancy, while same-store operating expenses grew 2.2% year-over-year, primarily due to real estate taxes. The combination of 4.0% revenue growth and expense control initiatives that reduced same-store controllable expenses by 2.1% over the same period in 2018, led to same-store NOI growth of 5.3%, our eighth consecutive quarter of year-over-year NOI growth;
• We entered into a $59.9 million mortgage loan and a $150.0 million private shelf agreement. Of the $150.0 million available under the private shelf agreement, we funded $75.0 million of Series A unsecured senior notes and $50.0 million of Series B unsecured senior notes;
• We updated earnings guidance with respect to projected same-store growth for calendar year 2019 as follows:
• raised the midpoint of full-year net income per diluted share guidance from net loss of $(1.22) to net income of $2.77. This increase was due to gains from the sale of real estate assets;
• increased the range of full-year Core FFO per diluted share from $3.68 to $3.78, which increased the midpoint from $3.67 to $3.73. This increase is due to better operating results, disposition and redeployment execution, and interest savings from favorable debt refinancing;
• raised the midpoint of full-year NOI to 3.75% from 3.50% by narrowing the range from 3.00%-4.00% to 3.50%-4.00%;
• narrowed the range of revenue growth from 3.00%-4.00% to 3.25%-3.75%, which left the midpoint unchanged; and
• narrowed the range for expenses from 2.75%-3.75% to 3.00%-3.50% and reaffirmed the midpoint of 3.25%.
• We repurchased approximately 39,000 common shares for an aggregate total cost of $2.3 million, representing an average price of $59.57 per common share.

Acquisitions and Dispositions

During the third quarter, we acquired FreightYard Townhomes and Flats, a 96-home apartment community in Minneapolis, Minnesota, and Lugano at Cherry Creek, a 328-home apartment community in Denver, Colorado, for an aggregate purchase price of $125.3 million.  During the third quarter, we sold one apartment community in Billings, Montana and our entire portfolio in Topeka, Kansas for an aggregate sale price of $84.4 million. We also sold one parcel of unimproved land for $600,000.

Balance Sheet

At the end of the third quarter, we had $155.4 million of total liquidity on our balance sheet, including $146.9 million available under our corporate revolver.

2019 Financial Overview

We are raising our earnings guidance for calendar year 2019 based on actual results through September 30, 2019 and expected results through the remainder of the calendar year as specified below.

Recent Developments

On October 29, 2019, we sold five apartment communities containing 414 apartment homes in Bismarck, North Dakota for a sale price of $24.0 million.  These properties included Crestview, Kirkwood Manor, North Pointe, Pebble Springs, and Westwood Park. The sale of these properties enabled us to retire $11.3 million of mortgage debt.

On November 1, 2019, we sold a commercial property in Woodbury, Minnesota for a sale price of $5.8 million.

Upcoming Events

IRET is scheduled to participate in the upcoming National Association of Real Estate Investment Trusts ("Nareit") REITworld: 2019 Annual Conference in Los Angeles, California, from November 12-14, 2019.

Quarterly Distributions

Effective September 5, 2019, IRET's Board of Trustees declared a regular quarterly distribution of $0.70 per share/unit payable on September 30, 2019, to common shareholders and unitholders of record on September 16, 2019.  IRET has paid cash dividends to common shareholders and unitholders every quarter since its initial dividend payment in 1971.

Effective September 5, 2019, IRET's Board of Trustees also declared a distribution of $0.4140625 per share on the 6.625% Series C Cumulative Redeemable Preferred Shares (NYSE: IRET PRC) payable on September 30, 2019, to holders of record on September 16, 2019.  Series C preferred share distributions are cumulative and payable quarterly in arrears at an annual rate of $1.65625 per share.

Earnings Call

Supplemental Information

Supplemental Operating and Financial Data for the quarter ended September 30, 2019 included herein ("Supplemental Information"), is available in the Investors section on IRET's website at www.iretapartments.com or by calling Investor Relations at 701-837-7104.  FFO, Core FFO, NOI, and Adjusted EBITDA are non-GAAP financial measures.  These measures and other capitalized terms, as used in this earnings release, are defined and reconciled in the Supplemental Information that accompanies this earnings release.

About IRET

IRET is a real estate company focused on the ownership, management, acquisition, redevelopment, and development of apartment communities.  As of September 30, 2019, we owned interests in 84 apartment communities consisting of 13,336 apartment homes.  IRET's common shares and Series C preferred shares are publicly traded on the New York Stock Exchange (NYSE symbols: "IRET" and "IRET PRC," respectively).

Forward-Looking Statements

Certain statements in this press release and the accompanying Supplemental Operating and Financial Data are based on our current expectations and assumptions, and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements to be materially different from the results of operations, financial conditions, or plans expressed or implied by the forward-looking statements.  Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be achieved.  Such risks, uncertainties, and other factors that might cause such differences include, but are not limited to those risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" contained in our Transition Report on Form 10-KT for the transition period ended December 31, 2018, in our subsequent quarterly reports on Form 10-Q, and in other public reports.  We assume no obligation to update or supplement forward-looking statements that become untrue due to subsequent events.

Investor Relations Contact Information
Jonathan Bishop
|Vice President - Finance
Phone: 701-837-7104
E-mail: IR@iret.com

IRET
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (unaudited)

This release contains certain non-GAAP financial measures. The non-GAAP measures should not be considered a substitute for operating results determined in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The definitions and calculations of these non-GAAP measures, as calculated by us, may not be comparable to non-GAAP measures reported by other REITs that do not define each of the non-GAAP measures exactly as we do.

We provide certain information on a same-store and non-same-store basis.  Same-store apartment communities are owned or in service for the entirety of the periods being compared, and, in the case of development properties, have achieved a target level of physical occupancy of 90%. On the first day of each calendar year, we determine the composition of our same-store pool for that year as well as adjust the previous year, which allows us to evaluate full period-over-period operating comparisons for existing apartment communities and their contribution to net income. We believe that measuring performance on a same-store basis is useful to investors because it enables evaluation of how a fixed pool of our communities are performing year-over-year. We use this measure to assess whether or not we have been successful in increasing NOI, renewing the leases on existing residents, controlling operating costs, and making prudent capital improvements.

Reconciliation of Operating Income (Loss) to Net Operating Income

Net operating income, or NOI, is a non-GAAP measure which we define as total real estate revenues less property operating expenses, including real estate taxes. We believe that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by depreciation, amortization, financing, property management overhead, casualty losses, and general and administrative expenses. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance.

Same-Store Property Operating Expense Comparison

Reconciliation of Net Income (Loss) Available to Common Shareholders to Funds From Operations and Core Funds From Operations

We use the definition of FFO adopted by the National Association of Real Estate Investment Trusts, Inc. ("Nareit"). Nareit defines FFO as net income or loss calculated in accordance with GAAP, excluding:

• depreciation and amortization related to real estate;
• gains and losses from the sale of certain real estate assets; and
• impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

Due to the limitations of the Nareit FFO definition, we have made certain interpretations in applying this definition. We believe that all such interpretations not specifically identified in the Nareit definition are consistent with this definition. Nareit's FFO White Paper 2018 Restatement clarified that impairment write-downs of land related to a REIT's main business are excluded from FFO and a REIT has the option to exclude impairment write-downs of assets that are incidental to its main business.

We believe that FFO, which is a standard supplemental measure for equity real estate investment trusts, is helpful to investors in understanding our operating performance, primarily because its calculation excludes depreciation and amortization expense on real estate assets, thereby providing an additional perspective on our operating results. We believe that GAAP historical cost depreciation of real estate assets is not correlated with changes in the value of those assets, whose value does not diminish predictably over time, as historical cost depreciation implies. The exclusion in Nareit's definition of FFO of impairment write-downs and gains and losses from the sale of real estate assets helps to identify the operating results of the long-term assets that form the base of our investments, and assists management and investors in comparing those operating results between periods.

While FFO is widely used by us as a primary performance metric, not all real estate companies use the same definition of FFO or calculate FFO in the same way. Accordingly, FFO presented here is not necessarily comparable to FFO presented by other real estate companies. FFO should not be considered as an alternative to net income or any other GAAP measurement of performance, but rather should be considered as an additional, supplemental measure. FFO also does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of sufficient cash flow to fund all of our needs or our ability to service indebtedness or make distributions.

Core Funds from Operations ("Core FFO") is FFO as adjusted for non-routine items or items not considered core to our business operations. By further adjusting for items that are not considered part of our core business operations, we believe that Core FFO provides investors with additional information to compare our core operating and financial performance between periods. Core FFO should not be considered as an alternative to net income as an indication of financial performance, or as an alternative to cash flows from operations as a measure of liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions to shareholders. Core FFO is a non-GAAP and non-standardized measure that may be calculated differently by other REITs and should not be considered a substitute for operating results determined in accordance with GAAP.